Stochastic Dominance and Absolute Risk Aversion
Universitat Autonoma de Barcelona
Joan Maria Esteban
Autonomous University of Barcelona
July 23, 2002
UPF Economics and Business Working Paper No. 643
In this paper we propose the infimum of the Arrow-Pratt index of absolute risk aversion as a measure of global risk aversion of a utility function. We then show that, for any given arbitrary pair of distributions, there exists a threshold level of global risk aversion such that all increasing concave utility functions with at least as much global risk aversion would rank the two distributions in the same way. Furthermore, this threshold level is sharp in the sense that, for any lower level of global risk aversion, we can find two utility functions in this class yielding opposite preference relations for the two distributions.
Number of Pages in PDF File: 27
Keywords: Risk aversion, stochastic dominance
JEL Classification: D81, D30working papers series
Date posted: June 19, 2003
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo1 in 0.422 seconds